Telecom loses appeal over anti-competitive pricing

Judgement still pending on possible $12 million fine

An eight-year court battle has finally ended with Telecom losing its challenge in the Court of Appeal over anti-competitive pricing policies.

The Court of Appeal last week dismissed Telecom's appeal against an October 2009 High Court judgment that found the telco had unlawfully leveraged it substantial market power to charge downstream competitors disproportionately high prices for wholesale access to its network.

Telecom had prevented and deterred competition in markets involving high-speed data transmission, the judgment, which was embargoed until noon today, said.

The Commerce Commission, which began the battle in March 2004, focused its case on Telecom's wholesale pricing of data 'tails'.

These are the point between an end customer's premises and where rival telecommunications service providers (TSPs) can take delivery of data signals from Telecom.

During the period the anti-competitive pricing occurred - which the commission stated was December 1998 until late 2004 - the market for high-speed data transmission services was worth an estimated $120 million a year. But the 2009 judgment narrowed the timeframe over which the breaches occurred to a three-year period between 2001 and 2004.

During the 1990s, rival TSPs sought access to Telecom's network in order to provide their own data transmission services, achieved by using the data tails.

Around December 1, 1998, Telecom introduced new pricing for its retail high-speed data transmission services and in March the following year did the same for wholesale pricing.

The High Court judgment found that the wholesale price Telecom charged to other TSPs for access to data tails was so high relative to the telco's retail price that it caused a price squeeze. It also determined that the pricing was designed to deter existing or potential competition in the national wholesale market for backbone transmission services.

In rejecting Telecom's appeal, the Court of Appeal also concluded the price fixing took place prior to 2001. Justices Susan Glazebrook, Robert Chambers and Ellen France amended the lower court's declaration to say Telecom took advantage of its market power from February 1999 to late 2004.

The appeal court judges dismissed Telecom's four arguments on why it should reject a pre-2001 declaration; statutory limitation periods, grounds of delay, the cases before 2001 were hypothetical, and that it had been placed in difficulty in relation to the pre-2001 matters.

The $12 million penalty imposed by the High Court in April last year - the highest made under the Commerce Act - was also the subject of appeal but will be dealt with in a separate judgment. The commission had sought a penalty in the range of $20-$25 million.

The 2009 penalty judgment issued by Justice Rodney Hansen, said Telecom's conduct was

"injurious to competitors, brought significant benefits to Telecom and were damaging to competitive process".

Telecom had responded by saying the case stemmed from the introduction of retail and wholesale pricing for data services more than 11 years ago in a regulatory and competitive environment much different than today's.

The alleged breaches were technical and unintentional, it said.

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